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Posts Tagged: Village View Escrow Inc.

A $1.5 million cyberheist against a California escrow firm earlier this year has forced the company to close and lay off its entire staff. Meanwhile, the firm’s remaining money is in the hands of a court-appointed state receiver who is preparing for a lawsuit against the victim’s bank to recover the stolen funds.

The heist began in December 2012 with a roughly $432,215 fraudulent wire sent from the accounts of Huntington Beach, Calif. based Efficient Services Escrow Group to a bank in Moscow. In January, the attackers struck again, sending two more fraudulent wires totaling $1.1 million to accounts in the Heilongjiang Province of China, a northern region in China on the border with Russia.

This same province was the subject of a 2011 FBI alert on cyberheist activity. The FBI warned that cyber thieves had in the previous year alone stolen approximately $20 million from small to mid-sized businesses through fraudulent wire transfers sent to Chinese economic and trade companies.

Efficient Services and its bank were able to recover the wire to Russia, but the two wires to China totaling $1.1 million were long gone. Under California law, escrow and title companies are required to immediately report any lost funds. When Efficient reported the incident to state regulators, the California Department of Corporations gave the firm three days to come up with money to replace the stolen funds.

Three days later, with Efficient no closer to recovering the funds, the state stepped in and shut it down.

Up until the past few weeks, the firm’s remaining funds have been tied up in a conservatorship established by the state, effectively barring the company’s owners from accessing any of its money. In early July, the state appointed a receiver to help wind up the company’s finances.

The court-appointed receiver — Peter A. Davidson of Ervin Cohen & Jessup LLP in Beverly Hills — said he and the company are contemplating their options for recovering more of the lost funds from the bank — Irvine, Calif. based First Foundation.

“We’re exploring what choices we have to recover funds for those who had escrows and are owed money,” Davidson said. “We filed a claim with the insurance company and we’re looking at our options for possibly dealing with the bank.”

Davidson said the bank’s business customer logins were protected by a username, password and a dynamic token code, but that the one-time token wasn’t working at the time of the fraud.

First Foundation did not respond to requests for comment.

Efficient’s co-owner Daniel J. Crenshaw said the bank produced a report shortly after the heist concluding that the missing funds were stolen not in a cyberheist but instead embezzled by an employee of Efficient Services. Crenshaw said the bank later backed away from that claim, after the state appointed a local forensics expert to examine the controller’s computer; sure enough, they discovered that the system had been compromised by a remote access Trojan prior to the heist.

A California escrow firm that sued its bank last year after losing nearly $400,000 in a 2010 cyberheist has secured a settlement that covers the loss and the company’s attorneys fees. The settlement is notable because such cases typically favor the banks, and litigating them is often prohibitively expensive for small- to mid-sized businesses victimized by these crimes.

In March 2010, organized computer crooks stole $465,000 from Redondo Beach, Calif. based Village View Escrow Inc., sending 26 consecutive wire transfers from Village View’s accounts to 20 individuals around the world who had no legitimate or previous business with the firm. The escrow firm clawed back some of the stolen funds — $72,000 — but that still left Village View with a $393,000 loss, forcing the company’s owner to take out a personal loan at 12 percent interest to cover the loss of customer funds).

In June 2011, Village View sued its financial institution —Professional Business Bank — arguing that the bank was negligent because it protected customer accounts solely with usernames and passwords. Last week, Village View announced that it had reached a settlement with its bank to recover more than just the full amount of the funds taken from the account plus interest for Village View Escrow.

Kim Dincel, a shareholder at Silicon Valley Law Group, which represented the plaintiffs, said the Uniform Commercial Code and its corresponding California Commercial Code limits the damages resulting from wire transfer fraud to only the actual amount of money lost plus interest – nothing more. Common law claims such as negligence, breach of contract and fraud, and the damages that attached to them, are generally precluded from being asserted by a victim of wire transfer fraud in a lawsuit involving wire transfer fraud, he added.

“Banks typically deny liability for the cyber-theft which forces small businesses to spend money they do not have on legal fees and regulatory expenses in order to recover a limited and defined set of damages under the Uniform Commercial Code (UCC),” Dincel said in a prepared statement released Monday.

The Bank of Manhattan, which acquired Professional Business Bank last month, did not return calls seeking comment.